Power's Profit Still Seen in Old-Style Production by Utility CEO

(Bloomberg) -- Generating electricity is still the best way of turning a profit from power, according to the chief executive officer of Norway’s biggest utility.

While companies across Europe assess their position following the 60 billion-euro ($74 billion) deal that divided up the infrastructure and generation assets of Germany’s two biggest utilities, the CEO of Statkraft said his state-owned power company is ready to boost its wind and hydropower portfolios while letting others focus on transmission.

“For 25 years we have manged to deliver better returns on what we do than what grid companies do,” said Christian Rynning-Toennesen in an interview in Oslo. “We hope and believe we can continue to do so.”

Statkraft joins Finland’s Fortum Oyj and Germany’s RWE AG in betting on generation. Other European utilities are heading in different directions. EON SE opted to focus on transmission and retail networks by acquiring RWE’s Innogy spinoff. Vattenfall AB and Energie Baden-Wuerttemberg AG, are betting they’ll remain integrated utilities in the future.

Statkraft’s stuck with a strategy it formulated in the late 1990s of investing in hydropower, which offers some of lowest production costs available to utilities. It subsequently expanded generation in Asia and South America and also began developing wind farms.

Statkraft is currently building Europe’s biggest onshore wind park in central Norway, which is expected to be completed by 2020, just before the nation closes its renewable subsidy system for new entrants. The country’s wind power developments are expected to be profitable even without subsidies as new power cables crossing to the U.K. and Germany open new markets for Norwegian renewables.

“New cables will create even more profitable trading and do its most to support a low carbon system in all of North Europe,” Rynning-Toennesen said. “There is enough power for our traditional electricity-intensive industry and new data centers without any risk of shortages.”

Statkraft and Vattenfall in neighboring Sweden just recently returned to paying dividends after low power prices, higher investments and write offs buffeted results. Unlike their neighbors, Statkraft has no plans to reenter European offshore wind markets to fuel future profits. Statkraft sold its last remainingU.K. offshore blocs last year.

“It is a big boys’ game and we are a medium boy,” Rynning-Toennesen said. “Offshore wind will be an arena for oil companies and big energy companies that have the strong balance sheets to be really good at this.”

Statkraft intends to pour the funds received from its offshore sales into onshore projects in northern Europe, Turkey and Brazil, according to the CEO, who added the utility is also investing in hydro and solar generation in India. Statkraft wants to grow capacity to about 18 percent, or 20 gigawatts, in the next couple of years.

©2018 Bloomberg L.P.

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